IndusInd Bank Limited (INDUSINDBK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q4 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sunil Mehta, Chairman, along with the Management of IndusInd Bank. Thank you, and over to you.

Thank you. Dear all, first of all, good evening, and thank you for joining this call. My sincere apologies for the delay, and this was on account of an extended Board meeting that has ended just shortly earlier. I'm Sunil Mehta, Chairman of IndusInd Bank. I'm joined by Soumitra Sen and Anil Rao from the Committee of Executives and the rest of the senior management team of the bank. It is typically unusual for a part-time Non-Executive Chairman to address the investors and analysts. However, given the recent chain of events, the Board and the management felt it's appropriate to use this opportunity for the Board Chair to also engage directly with you. So thank you for giving me this opportunity. As you know, we have seen multiple material developments since March. At the outset, we acknowledge that these developments are unfortunate for any organization, and it's painful to see these taking place in particularly in your own. However, the Board is determined to address all identified issues so that we can move and resolve to move appropriately forward. I want to first spend a few minutes on the approach taken by the Board to address the issues at hand. The irregularities disclosed indicate an inadequate emphasis on accounting analysis and rigor as well as lapses in and violations of governance norms, internal controls, disclosure and reporting mechanisms to the Board. The Board was not informed of the discrepancies, including at the time of approval of the financial results for the relevant accounting periods. Upon being made aware of the irregularities since March 2025, the Board has swiftly taken active steps in understanding and addressing all areas of concern holistically and disclosing progress transparently at all appropriate stages. The Board and the management set forth its desire of maintaining trust in the institution by aspiring for and implementing higher standards of transparency and compliance. The Board is closely working with management and all relevant stakeholders so that the bank can be forthcoming in highlighting any irregularities, which need to be addressed. The Board, along with the management has spent considerable time and effort in assessing in a timely manner all the irregularities brought to our attention. Wherever required, we sought assistance of reputed external professional firms in addition to detailed internal review. The bank is announcing this year's financial results slightly later than what it has done so in the past. Given the events, which have transpired, the statutory auditors have done substantive checks with wider sample sizes to analyze any anomalies in financial reporting so that all the identified issues can be adequately and fairly accounted while finalizing quarter 4 results for financial year '24-'25. The Board and its committees are working with the management and external advisers to identify and address the root causes, rectifying any lapses in systems or processes and imbibing learnings to tighten internal controls. These shall be reviewed and implemented under the Board's oversight. We strongly believe these extra steps should help in avoiding such incidents happening in the future. While we address these immediate issues, we are also cognizant of the need to reinforce the governance culture and long-term sustainability of the organization. We are institutionalizing ethical best practices, robust systems and processes while rebuilding the talent desirous of delivery on such a framework. The Board is also in the process of taking necessary steps to assess roles and responsibilities and fixing staff accountability as per the extent laws and internal code of conduct. We are approaching these aspects with utmost seriousness without fear or favor to anyone involved in precipitation of these issues. The Board is also continuously engaged with the regulators. The Board would like to express its gratitude to the regulators and particularly the RBI for its support and guidance in helping navigate these challenging times. Once we have shared updates through stock exchange information and also as part of the financial statements for quarter 4 '24-'25 -- financial year '24-'25, which have been disclosed, I will summarize the recent events and financial performance as follows: number one, the derivative accounting issue. The bank has received final reports from both external firms, and the financial impact is broadly similar to the earlier initial internal assessment. The bank has already discontinued internal accounting phase since 1st April 2024 and is in the process of taking further measures to improve internal controls and processes to prevent such lapses occurring again. The Board has also taken a very serious view with respect to staff accountability across levels to reinforce the governance and compliance culture and is in the process of taking actions for staff accountability. Number two, additional rigorous review. In addition, in light of the derivative account issue, the Board has also worked with the management and the statutory auditors to undertake an enhanced and much more rigorous review as part of finalizing the financials, including thorough reviews by the internal audit department of the bank. As part of this exercise, the bank has identified the following significant matters, which have been appropriately accounted for -- in the financials for quarter 4 '24 financial year '24-'25. Number one, microfinance portfolio. The reviews identified that over the first 3 quarters of financial year '24-'25, there was incorrect recording interest income and fee income. The review has also identified the misclassification of certain microfinance loans, which have resulted in underprovisioning and non-recognition of NPAs aggregating INR 1,885 crores. The bank has addressed the underlying cause and is in the process of taking actions for staff accountability. Other matters. As part of the review, it was also noted that there were certain unsubstantiated balance in other assets and other liabilities accounts of the bank and that an amount approximately of INR 760 crores has been incorrectly classified as interest income instead of other income. Based on review of all these matters and reports received by the Board, the Board suspects the occurrence of fraud against the bank and the involvement therein of certain employees, having a significant role in the accounting and financial reporting of the bank. Accordingly, the bank has directed necessary steps to be taken under applicable law, including reporting to regulatory authorities and investigative agencies and to also fix accountability of all persons responsible for these lapses. The financial impact absorbed in quarter 4 financials in FY '24-'25. The financial impact of all the above has been fully taken in the audited financial statements of the bank for the financial year 2024-'25. The bank's approach towards financials has been to start FY '25-'26 on a clean slate without carrying forward any of the past issues. The bank has thoroughly reviewed all the lines of accounting and has taken a conservative view in some of the accounting treatments. This has reflected in a few one-offs versus the business as usual run rate, which we shall delve deeper in subsequent sections. The bank's balance sheet remains healthy after absorbing all these changes with a capital adequacy ratio of 16.24%, I repeat, capital adequacy ratio of 16.24%, a provision coverage ratio of 70% and an average liquidity coverage ratio of 118% with an excess liquidity of INR 39,600 crores. The liquidity remains comfortable in current quarter as well with an average LCR of 139% in the first half of this quarter. I would now refer to the leadership transition. Following the findings of external review announced on 27th of April 2025, the bank's CEO and Deputy CEO had resigned from their respective roles thereafter. The RBI has advised the bank to submit proposals for appointment of the new CEO for RBI's approval by 30th June 2025. The Board is at an advanced stage in the selection process and is confident that the recommendations will be submitted to the RBI in advance of the timeline prescribed. This will provide strong leadership and management stability at the bank. The Board is determined to identify and expeditiously induct strong leadership with right competencies, strong ethics and the ability to build and scale a robust franchise. In the interim and as approved by the RBI, the Committee of Executives, which is Anil Rao and Soumitra Sen, is entrusted to oversee the operations of the bank. The Committee of Executives is guided by an oversight committee of the Board comprising of the Chairpersons of the Board, the Risk Management Committee, the Compensation and Nomination Committee and the Audit Committee of the Board. The Board of Directors and the management team is committed to ensure a smooth transition. I would now like to reinforce the ethos of governance while executing the growth strategy from here on. The Board is working with the management to bring in a cultural shift towards achieving high standards of ethics and governance. We want to build an environment of open and honest communication with all the stakeholders, prioritizing long-term sustainability over short-term achievements. Compliance with extent regulations in form as well as spirit is nonnegotiable. A One Bank vision, breaking the silos by laying a strong foundation, would ensure avoiding repetition of such episodes, providing uninterrupted execution on the bank's strategic growth objectives. I will now hand over to Soumitra Sen to take you through the highlights on individual businesses. Soumitra, over to you.

Thank you, Chairman. Let me start with the vehicle finance, one of the business pillars of the bank. Our vehicle loan book at INR 95,595 crores grew at 8% Y-o-Y and 2% quarter-on-quarter. The disbursements for quarter 4 was INR 12,273 crores, which was 3% Y-o-Y growth. Full year disbursements were at a whopping INR 47,600 crores. The industry volumes across categories have grown by single digit during the year. We have maintained stable market share across 3 categories of commercial vehicle, construction equipment and passenger cars. We also consolidated our position in tractors as we reinforced our processes and credit underwriting. The asset quality trends have been improving since quarter 3 after the first half, which was slightly weak. The sequential improvement in gross slippages continued in quarter 4 as well and it was 0.74 last quarter and it's 0.70 in quarter 4. All the vehicles segments, except tractors, saw a sequentially stable and improved gross slippages. We are refrained from selling NPAs to ARC during this quarter, and we focused on our own collection drives. This, however, optically increases the GNPA ratios. The restructured book in the vehicle finance continues to show a reduction. We started the year with INR 547 crores, and now it's INR 119 crores at the end of financial year '25. And majority of this reduction has come from upgrades and recoveries. Looking ahead, improving fiscal spends, benign oil prices, falling interest rates and a monsoon being absolutely fine, I think we should be supporting the recovery in the industry volumes. Let me now get into Bharat Financial. The outstanding loan book is now INR 38,169 crores. It's down 2% quarter-on-quarter, but 15% Y-o-Y. The microfinance business showed signs of stabilization in quarter 4. The disbursements were up 1.4% quarter-on-quarter. We followed a very cautious approach for disbursements with 94% of disbursements in quarter 4 with the branches with low flows from the current areas and to customers and centers with high vintage with us. We have implemented the MFIN guardrails effective from April 1, 2025. This restricts disbursements to customers with not more than 3 lenders. With large customer base unique to us and our conservative ceiling on clients' overall exposure, the impact of the business has been limited so far. We have disclosed early trends in the delinquency buckets, and they have improved in both stock as well as fresh flows of delinquencies. Now let me give you a brief of the Karnataka situation, it's improving, and the current book, net of the collection efficiency in Karnataka has improved from 96.4% in February '25 to 98.2% in March '25. As a result, the 31 to 90 days past due, reduced to 2.3% in March '25, down from 4.1% in December '24. We have also disclosed trend in all standard over new customers, that's 0 DPD to GNPA, which is heading back to normalcy. The slippages were elevated during the quarter due to the accumulated stress in the earlier quarters and misclassification of certain loan accounts, which was corrected in quarter 4. Now Bharat Super Shop, that's the merchant acquiring business under the BFIL banner. We have now 664,000 merchants under this program. The book is INR 7,260 crores, growing at 30% year-on-year. The share of non-MFI book has improved from -- improved 19% from 12% year-on-year. The total liabilities through BFIL now stands at INR 2,680 crores, up 3% quarter-on-quarter, and it has 19 million accounts. Overall, the portfolio stress witnessed last year is winning. As we see the portfolio quality improving in most states, we are cautiously focusing on disbursements in select geographies, amongst clients with higher vintage. With the implementation of MFIN guidelines, further strengthening of controls, the Karnataka operations steadily getting back to normalcy, our focus is to ensure disbursement quality, dedicated efforts on collection recovery and continued diversification of the loan book. Now let me brief you about the corporate bank. During the quarter, we let go some of the corporate loans for balance sheet management and liquidity management. Consequently, our corporate loan book has come down by 16% quarter-on-quarter and 6% Y-o-Y. This was only a tactical decision, keeping in mind the short-term objectives of the bank. The overall strategy of scaling up granular and small corporates with selective exposure to large corporate continues to be implemented. The proportion of A+ and above rated customers at 77% has been steady Y-o-Y, slight decline quarter-on-quarter versus 79% of last quarter. But as we go in for some high-rated loans, the weighted average rating was 2.57% versus 2.51% year-on-year. Now let me brief you about the Diamond business. It continues to show healthy growth, the asset quality with no SMA-1 and SMA-2. While growth is subdued due to weak industry demand, industry, we are liaising with the stakeholders for suitable terms in bilateral trade discussions. We are closely monitoring the developments and are comfortable with the exposures as of now. The gross slippages in the corporate book, which were at INR 204 crores, mainly contributed by one restructured real estate amount accounting to INR 140 crores. The full gross slippages for corporate book improved from 44% to -- 0.44% to -- versus 0.54% year-on-year. The corporate restructured book also has now reduced to INR 147 crores from the INR 583 crores at the start of the year. Our SMA-1 and SMA-2 book collectively stands at 24 bps versus 20 bps quarter-on-quarter. Overall, while we have consolidated our corporate book during the quarter, we have resumed our disbursements selectively in focus areas and growth in corporate bank should start reflecting in the coming quarters. Now let's talk about the other retail assets. Our other retail assets maintained growth momentum with 17% Y-o-Y and 6% quarter-on-quarter. The MSME book under business banking is at INR 18,232 crores, grew 9% Y-o-Y and 3% quarter-on-quarter. The LAP book maintained steady traction with 15% Y-o-Y and 3% quarter-on-quarter growth. We continue to focus on home loan, scale-up with outstanding now at INR 4,491 crores, growing at 151% year-on-year and 43% quarter-on-quarter. It's a small book. So look -- the percentage growth looks very attractive. The credit card spends at INR 27,666 crores were broadly steady. Our market share in credit card spends was at 5.31 based on the latest available data. Overall, we should continue to scale our other assets and at the faster pace with focus on improving diversification of loan book while increasing the retail secured mix with home loans and MSME. Now coming to liabilities. Total deposits was at INR 4,10,862 crores. It grew 7% Y-o-Y, while remaining steady at quarter-on-quarter. Our deposit franchise had shown resilience during the turbulent last couple of months. We are proactively engaged with our customers, rebuilding the trust in the institution. These initiatives helped stabilize our deposit base with after a temporary blip post the disclosure on March 10. The retail deposits as per LCR grew 9% Y-o-Y, contributing to 45.1% of overall deposits versus 44.1% year-on-year. That's a 100 bps increase in 1 year. We have carried healthy liquidity during the quarter with the average LCR at 118% and an average surplus liquidity at INR 39,600 crores. The period end LCR as of 31st of March '25 was at 136% along with surplus liquidity of INR 62,000 crores. The liquidity position continues to be healthy during the current quarter as well with the average LCR at the first half of the quarter being at 139%. Apart from the short-term disruptions in March, our new initiatives are affluent banking and NRI Banking continue to scale up at the healthy and sustained space. Affluent segment deposits at INR 58,300 crores, grew at 9% Y-o-Y. Affluent AUM at INR 102,000 crores has now crossed INR 100,000 crores mark, growing at 24% Y-o-Y. Our NRI segment deposits at INR 58,300 crores grew by 28% Y-o-Y. Share of the top 20 deposit is now reduced to 14.8% in March '25 versus 17.4% Y-o-Y. It shows the debulking, which we are doing. The share of certificates of deposits at 8.2% of overall deposits and borrowings at 9.7% of total liabilities. Overall, our deposit franchise showed resilience during the turbulent time. Looking ahead, we remain confident on resuming our journey towards building granular retail deposit franchise while keeping our cost of deposits in check. The developments around easing liquidity also goes well for our deposit franchise. Now coming to the digital traction. The digital -- the direct digital business continue to scale with efficiency. And overall, 75,000 new-to-bank customers get acquired digitally every month. Our flagship mobile banking app, INDIE, continue to scale with positive impact on customers adapting the upgraded app. INDIE for business, our digital app for MSME, now has 50,000 registered customers and a monthly transacting base of 75%, that's around 37,500 customers. The bank's EasyCredit platform for all retail and MSME exposures up to INR 5 crores ticket size processed 15 million applications during the year. Now some highlights. 100% of the bank's personal loan and credit cards originated digitally. The platform is compliant with digital lending guidelines, offers digital KYC and fraud checks, real-time positioning part by machine learning algos and digitized disbursements via E-Sign, E-Stamp and E-Mandate. It is also integrated with the RBI Innovation Hub Unified Lending Interface, that's ULI, an account aggregator. Now I will request my colleague, Anil, to cover the financials.

Thank you, Soumitra. This is Anil Rao here. What I'm trying to do is basically consolidate and provide the 3 points with respect to the financial performance. As mentioned earlier, we reviewed all our accounts rigorously and have taken a conservative view wherever there were debatable items. We have also provided for all the issues brought to the attention of the Board. We are thus starting the new financial year with a clean slate and robust network. Some of these changes, which have a onetime impact, while a few change baseline financials as well. Key financial adjustments are, as mentioned below. Number one, we have reversed other income by INR 1,960 crore on account of derivative-related discrepancies disclosed on March 10, 2025. Number two, we have reversed revenue of INR 423 crores net of interim provisions and accrued interest towards the accounting error identified by the internal audit team during the review of our microfinance business. Number three, the bank has also set up unsubstantial increase in other assets and other liabilities amounting to INR 595 crores. Please note, this has no impact on the profit and loss of the bank. This has no impact on the profit and loss of the bank. Number four, we recognize materially high slippages in microfinance business of INR 3,509 crores. This resulted in interest income reversal of INR 178 crores. Number five, we have reviewed groupings and classification of the P&L items resulting into INR 760 crores regrouped from interest income to other income and INR 158 crores from provisions and contingencies to the other operating expenses. This has no impact on the profit and loss of the bank. I repeat, this has no impact on the profit and loss of the bank. Adjusted for nonrecurring one-offs, the net interest margin for Q4 would have been around 3.47% and a pre-provision operating profit of INR 3,062 crores. If we did not have these one-offs, we would have been at a net interest margin of 3.47% and pre-provision operating profit of INR 3,062 crores. The adjusted financials were subdued versus business as usual run rate, largely impacted by adverse loan mix and conservative liquidity priorities towards the end of the quarter. In terms of asset quality, the gross slippages by key segments were vehicle finance INR 657 crores, corporate loans INR 220 crores, other retail INR 620 crores and microfinance INR 3,509 crores. This reflects sequential improvement in all segments other than the microfinance loan book. We have also seen improvement in net security receipts at 27 basis points, restructured book at 12 basis points and stable SMA 1 and 2 at 24 basis points. Overall, to conclude, whilst we have reported a loss for the quarter due to the extraordinary events mentioned earlier, we have closed full financial year -- financial year '25 with profit after tax of INR 2,575 crores. I'll repeat, we have, for the full financial year with profit after tax of INR 2,575 crores. Our capital adequacy ratios remain healthy after factoring all the hits on account of these one-off measures with CET1 at 15.10% and overall CRAR at 16.24%. Our CET1 is at 15.10% and overall CRAR at 16.24%. Now I'll hand over the same to the Chairman for closing remarks. Thank you.

Thank you, Anil. Overall, I think after all the business update and the financial update, if I may summarize. We acknowledge as a bank that the lapses, which have happened, are not expected from a bank like ours. The Board and management is committed to take all necessary steps to restore the trust and confidence in this institution. The Board and management has done a deep dive on the issues brought to its attention and has taken actions with a view of pursuing higher standards of governance, transparency and accountability. This governance culture will be continued to be reinforced as we progress further. The financials now reflect all the items brought to the attention of the Board. We are starting financial year '25-'26 on a clean and strong footing. The balance sheet continues to be robust with healthy capital adequacy, provision coverage and liquidity levels. The core franchise remains strong and we are focused on growth opportunities backed by capital strength and conservative liquidity. The bank will scale secured retail and MSME assets, be selective in corporate space, ramp-up in retail liabilities and follow a One Bank approach. The bank will continue to pivot our rural distribution towards Bharat Banking, albeit being cautious on microfinance as per the current industry conditions. The bank continues to invest in our new businesses such as home loans, affluent banking and particularly the Digital 2.0 merchant acquiring micro markets driven distribution, et cetera. As mentioned earlier, the search process for the new CEO is at an advanced stage. The incoming CEO will have an advantage to start with a fresh slate. The CEO should have capabilities to scale this differentiated organization, have a strong ethical foundation with proven track record of execution and leveraging, evolving technology and customer preferences. There is immense potential for this franchise to deliver sustainable and profitable growth for years ahead. I would like to end my comments by profusely thanking the support and confidence extended by all stakeholders during this difficult period, which include but not limited to our -- first, our customers, investors, employees, regulators, media and all other institutions, which I may not have named. The bank will stand by the trust extended by all stakeholders in its action and words. Thank you so much for your patience. I will now open up for question and answers.

[Operator Instructions] First question is from the line of Chintan Joshi from Autonomous.

Can I start with just understanding the adjusted numbers. You highlighted that your NIM is 3.47%, which kind of gives us a INR 4,700 crores NII. Is that what you see? And could you talk us through the reported NII versus the adjusted NII number? If you can just give us all the moving parts, that would be helpful to get us some sort of a baseline of what you can take as a run rate number. And if you could do the same for the fee income line, that would also be helpful just so that we know we have got the right numbers? And then the second question is more around closure. So -- if I think about the matters that we've seen, what are you doing about taking up legal actions against the various issues that have come up in terms of claw backs, in terms of other legal proceedings? And also on that same topic of closure, when do you think you can draw line? And when can you get the confidence that there are no new frauds to be discovered? Or is the review still ongoing and we would need to wait for the new CEO to come in and give it thumbs up before we can be sure about that.

Thank you, Chintanji.

So why don't you answer the last question and then...

Yes. Okay. So let me -- this is Sunil Mehta, and I will answer the second question first. I just want to sort of let you know that as far as the entire process of accountability is concerned, we will follow without fear and favor the due process of law. And the -- whatever action that needs to be taken will be undertaken based on whatever is required to be done as per law, by ensuring that we do it expeditiously. The process will continue. The bank is progressing as normal today. And we doesn't have to wait for the next CEO to come in as far as this process of accountability and whatever needs to be done from whoever was accountable for the issues that we have just stated in our communication to you. I will now hand over the second question on the -- relating -- the first one relating to NIM...

Sorry, the second question also was about the future, right? When can we get closure on this? Do we need to wait for the new CEO to draw a line? Or do you think the Board can draw the line on the various issues? And have you finished identifying all the various issues?

So I think what we have done, and I'll -- Chintan, is that based on whatever reviews that have been done, all issues have been duly identified and duly addressed and declared and shared with all stakeholders, including what we have done with you. We will follow as per law, whatever needs to be taken. It does not need -- we do not have to wait for the new CEO because this will sort of continue. And most of these issues are -- actually, all these issues have been already reported to the regulatory authorities. So -- and the financial impact of all the issues that we have declared has already been undertaken in financial year '24-25. So those financial adjustments have been done. So from a financial perspective and doing business from coming back to business as usual, again, that is continuing and people will start focusing on that. And as far as the other stuff is concerned in terms of the -- as I said, on accountability, that will continue to follow as per due process of law.

Coming back now to the first question.

So Chintan, as we mentioned in the comments, so normalized net interest income or, let's say, a going concern, if you have to see what was the quarter 4, if we take out all the interact adjustments and one-offs, et cetera, the net interest income would come to around INR 4,700 crores. The noninterest income would come to around INR 2,500 crores, give or take, something here or there. The operating expenses would be around INR 4,200-odd crores. So the operating profit would be around INR 3,060 crores is what we disclosed in the opening remarks.

I'll run with you off-line for all the various adjustments.

Next question is from the line of Harsh Wardhan Modi from JPMorgan.

A couple of questions. One, how do we get comfort around whether this one-offs are more -- is this the last kind of set of one-offs in terms of cleanup or there are going to be more? And my second question would be regarding the liabilities. In last couple of months since closing the year, how much of deposits has the bank lost? And how do we think about the liability strategy of the bank over the next, let's say, 6 months?

If I can come in at the first part that you asked about. So as the Chairman mentioned earlier, the financial impacts of all the irregularities brought to the Boards and the bank's attention has been taken into the account while we have prepared and disclosed these results. There are nothing that is outstanding today to our understanding. So one-off as such we have already taken for. Whatever is the business as usual impact as we progress the near-term impact because of whatever liquidity, et cetera, we carry, that is part and parcel of the BAU. There is nothing one-off per se. There could be some industry or business-related issues that will happen, which is part and parcel of being in this business. But from the financials perspective, there is nothing that has not been accounted for in the numbers that we have. And as we mentioned in the opening remarks, we have done a thorough check of all the accounts that we have. We have spent extra time. You have seen that we are almost late by a month to announce the results. So a lot of efforts by all the stakeholders involved has gone into ensuring that the financials reflect the fair and transparent position the bank has. Coming to the deposit side, as you know, we don't disclose within the quarter, our deposit base. We have given you how our liquidity position has been. In the first half of the quarter, the liquidity that we have, the LCR is 139%, which is well above the regulatory threshold as well as the higher than what we had carried last quarter. In terms of strategy, I will hand over to Soumitra to give his comments.

See, the liability, especially the utilization has always been a core thing, which we have been talking about, apart from the home markets, developed markets, which we do, the new ones, which we are talking about, that One Bank approach, where all the BUs are now getting into the liability sourcing, and we have different contests and incentives to run for that. Second is that what we are doing is that the premiumization of the accounts, the branch distribution is now looking at opening the high-value accounts. And that's actually scaling up quite well. So you will see that growth happening in the affluent side of the business. And the cross-sell, the cross-sell and especially the NOS, which we look at the number of sales per person, and that's we are seeing that with the One Bank approach, that's actually climbing up quite well. So I feel with the -- at least on the granular, you have seen the -- our retail deposits going up, the percentage from 44.1% to 45.1%. And even during this particular quarter, we are seeing the retail growth is absolutely right on top. So I don't see that to slow down in any way.

So just to -- before you hand off to your next question, let me just also reinforce the point that was made by Indrajit earlier about the whatever we have done to bring things to closure. So there has been, after these issues or these issues were raised or identified, the bank has done an extensive review by both external and internal agencies for identification of all issues or any other issues that could be sort of identified. We -- as you can imagine, the statutory auditors have also done a very extensive stress test. And obviously, that they have fully put in their financials and their report whatever has been identified. And of course, the financial impact, as I already mentioned. The important aspect that I have to share with you is that during this process, wherever we recognize or figured or identified controlled weaknesses or any risk areas, those are being absolutely being addressed. So I think we are using this opportunity from this crisis to do a very deep review of all aspects of systems, controls, procedures and people so we strengthen all to make sure that we have a very robust systems and processes in place and with a high level of transparency as we move ahead so that if there is any issue, they must be surfaced expeditiously so that the same can be addressed. And I'll stop here. Thank you.

Next question is from the line of [ Adarsh ] from ENAM Asset Management.

Sir, you did mention about the sustainable or the clean margins and operating profit. Just wanted to understand historically...

Adarsh, sorry to interrupt you, your audio is not clear.

Yes. I hope this is better now. So I had a question on the clean operating profit you mentioned. Obviously, the cleaner margins have taken a dip but the fee incomes have -- are where we were earlier, right? So -- and historically, kind of the banks had [indiscernible]. So just wanted to understand how sustainable you think is the fee income streams or as we derisk the book, does this fee income kind of take a knock?

So Adarsh, as you would see some part of the net interest income has got reclassified into the fee income. We have given that information disclosure as well. So because of that, the fee income is where it is. Going forward, as you know, the strategy, which the Chairman, Soumitra, et cetera, covered, it's part and parcel of our business. Some of the areas that we are into our higher fee generating businesses. So it's a mix of what kind of loan mix that we aspire for, what kind of the segment that we are in. I'm sure the Board and the management as well as the incoming CEO will have a say into how we want to progress. I think it will be a little bit premature to comment on what should be our fee income or the fee to asset ratio, et cetera, going forward. Let's see how the -- every quarter goes.

Okay. And the second question is, sir, how should one look like since you've taken a full stock of the MFI NPAs, you've kind of provided a lot as well. Does this mean now that when you say we start on a clean state, our credit costs go back to what the normalized banks credit costs were? Or it's kind of still uncertain. We've taken a large part of it, but we are not sure of how credit costs would behave incrementally?

So overall, Adarsh, you would have seen even in this quarter, ex of microfinance, our slippages, credit costs, et cetera, in other segment has been better or stable. So ex of microfinance, we have not seen any issues as such. And those businesses continue to be in the steady state. The microfinance side, we have taken additional slippage this quarter, additional slippage this quarter. You have -- we have also given one additional disclosure, if you would have seen in microfinance segment, there is a 0-day plus book we have given a trend and that you would see that the 0-day plus book is almost coming back to normalcy where it was in the last year's March. So that gives us confidence that the incipient unrecognized stress is coming back to normalcy. But having said that, as you know, the situation in some of the states is still evolving. There are a few elections in the next 12 months. So we don't think the next year in microfinance will be back to normalcy. I think there should be a step down, obviously, given the number that we have reported. But in which case, there will be step down from the current quarter slippages, but it will still be elevated versus the business as usual. And then maybe in the second half of the year, you will see the things progressing back to normalcy. That's our base case today. But let's see how the MFIN guardrails, the industry election, some of the monsoon-related implications happen. So that's where we are. We are cautiously looking at this business but normalcy is maybe 6 months away.

Next question is from Ankit from Nomura.

Sir, I have 1 question. So we had roundabout INR 30 crores, INR 25 crores of contingent provision as of last quarter. Have we utilized those in this quarter?

Yes. That has been utilized.

Next question is from Piran Engineer from CLSA. Piran, may I request you to unmute your line and proceed with your question, please?

Am I audible?

Yes, you are.

My question is just on the INR 3,500 crores...

Sorry to interrupt you, Piran. We are losing your audio. Your voice is breaking. Can I request you to comeback for a...

It should be audible now?

Yes.

So the INR 3,500 crores slippages, just wanted to understand, did that slip in the quarter? Or had it slipped earlier, but you've recorded it now because of some recording lapse earlier or internal control lapse?

So we have given notes to accounts where we have given this background. There is around INR 1,800 crores of loans, which were incorrectly classified into certain other categories, and that resulted into them being recognized in more than 90 days. Those classifications have been rectified in this quarter. There was a review going on, which we also disclosed. So the INR 1,800 crore is where the correct classification of the underlying customer base has resulted into them. And that correct classification, as you would know, happens from the initial day and those original equities, et cetera, properly accounted for. Just that the classification back to 90 days resulted into additional slippage of INR 1,800 crores. And the balance is business as usual slippage. It is also higher. We understand, and that's what we have been discussing throughout the year. The slippages accumulated or the overdue book accumulated over the 9 months has turned into NPA in this quarter. So that -- those 2 segments -- those 2 subsegments are driving the microfinance slippage.

Got it. Okay. This is clear, Indrajit. And just secondly, what is the strategy now in this business? Like given what all has happened, one is the environment and second is internal controls, accounting, et cetera. Is it fair to say that we continue to degrow this book?

So we -- as Chairman, sir, had mentioned earlier that we will be cautious on microfinance segment. The approach of disbursements in the customers with long vintage, with better past payment record, those approaches will continue. The diversification into merchant advances continues. However, if you are expecting me to push pedal or change the disbursement approach towards reducing than what it is supposed to be, I don't think so. Business as usual disbursements will continue but we'll not be overly either cautious or aggressive in this segment. Whatever is flowing through our credit filters, we will be willing to take it. But we are waiting and watching on how the underlying industry is evolving. As you know, the MFIN guardrails, the monsoon, as I don't want to repeat it again, we are watching all those events. And once in which case the leadership is established, then the Board and the management will take a relook at the bank strategy, which segments we want to push, which we want to stay a little bit cautious. You would have noticed our capital adequacy is still above 15%. So there is growth capital available to the bank. The management, the Board will decide at appropriate time, what should be our medium-term, long-term loan mix that we should aspire for.

Next question is from Subhradeep Mitra from Nippon India.

Sir, I have 2 questions. The first one is that what led to the reduction of the corporate book from INR 170,000 to INR 140,000 during the quarter? And my second question is, if I look at your net interest income, even if I adjust for the one-offs, it comes to around INR 4,700 crores for the quarter against a normal run rate of approximately INR 5,300 crores. So what explains that difference?

So the other -- the business as usual is also impacted because of the normal interest reversal have happened because of the slippages during the quarter. So that has an impact. There is additional impact because of the events in March, we had to carry excess liquidity. That liquidity comes at a cost because you are deploying it in a lower-yielding asset. Thirdly, the loan mix has become -- loan mix because of the MFI being written off, the yield on the book have been depressed. So there are other business as usual impacts on the net interest income, which are relevant to the events that happened in the quarter, which we cannot say those are one-offs or whatever. We have just given you one-offs, which were -- where we need to act upon because of maybe some inaccuracies of prior period items, et cetera. Those have been accounted for. The INR 4,700 crores, which we say as business as usual, that will change depending on how the current quarter is going, how the next quarter is. So that number is something is the baseline, which from where we are starting. But I appreciate your point that itself is lower because of some of the impact, which happened during the last quarter on our business.

Just to add on the corporate book, it was just a tactical move to build liquidity. So the focus is on CCBG, and it will keep on climbing up. There's no go slow on that.

Next question is from the line of Rikin Shah from IIFL Securities.

Yes. A few questions, please. So the first one was in the notes to account #15, there have been some reclassifications from different P&L line items. Does that impact the P&L? Or it's just mere reclassification, and there is no P&L impact of that? That's number one. The second question is, if you could just quantify the total amount of fraud, which has impacted P&L in the quarter because some of them have been adjusted against each other, the rest are just reclassifications. That's the second one. The third question is, while there was a comment that the corporate loans were strategically just runoff to build up the liquidity. But was there any interest income reversal even in the corporate loans? Because the corporate loan yield has also dipped from 8.8% to 8.07% in the quarter. So those are my main questions. I have a few data keeping questions, which I'll take probably offline.

Yes. So some of those one-offs in terms of interest reversals, et cetera, have been allocated to the underlying businesses as we can't just leave it hanging, so wherever there have been impact. So segment-wise yield, I don't think you will need -- you will have a comparable to last quarter. So I think this quarter, I'm afraid you can't compare yields in the underlying segment because all these one-offs have been reallocated back to the underlying segment. So you would have seen yield in both consumer and corporate is lower this quarter -- significantly lower this quarter versus the previous quarter. That's one. Secondly...

The reclassification to corporate would have happened only if there was irregularity in some recognition on interest income there, right? Or is there some ad hoc reclassification done towards corporate?

So there's no reclassification in the corporate book. So it was mainly in the fee and income for the retail portfolio. Corporate was intact as it is. The reduction is mainly on account of repo rates, which has impacted the margin and the liquidity that we have maintained. I hope we are clear, Rikin.

Yes, fair enough. And on the other 2 questions, the notes to account 15, is that just mere reclassification? Or there is a P&L impact of the forward items, which are mentioned in notes?

No, the first part of the notes to account has P&L impact. These have been accounted in the current quarter's numbers. The -- and those are the respective lines we have mentioned it very clearly. The second part is where we have also mentioned, these are just reclassification. Those 2 line items of INR 761 crores and INR 158 crores, they don't have a P&L impact. And we have given you, like earlier mentioned, the steady-state business as usual numbers, which takes into account all these changes that have happened during the quarter.

Got it. So just fair to say that around INR 4,900 crores of frauds had a P&L impact in the quarter. I'm just summing up all the numbers, which are there. But does that broadly tell INR 4,900 crores P&L impact?

I wouldn't be able to say or comment on -- we have made a filing, whether it's fraud, et cetera. It's still not yet conclusive. We don't want to get into that. Let's wait and watch. The process is still ongoing. But you can compare the BAU versus the reported -- that's the difference between the underlying versus the reported number.

Got it. And just one last question, Indrajit. Did I understand clearly that the fee income of around INR 2,100 crores in the quarter was also because of certain reclassification from interest income to fee income. So the steady-state fee income could be lower than what we saw in this quarter?

We have -- what I referred to earlier was around INR 2,500 crores of normalized fee income in this quarter. If we keep aside the derivative-related adjustment that we have done, that number is stable versus the quarter 3 because some of the interest income has got reclassified into the fee income. So this INR 2,500 crores is the BAU. Now it can go up, down, wherever depending on how the underlying businesses go, and that we will have to see every quarter.

Yes, fair enough. And I'll connect subsequently on some data keeping questions.

Next question is from the line of M.B. Mahesh from Kotak Securities.

Sorry, my question again also is the same as the previous one. This INR 761 crores of interest income, which got reclassified, is it possible for you to give us a bit more clarity as to what has caused this?

So it's mainly we have certain items pertaining to some products, which were wrongly classified under interest income. I think it should have been -- from the beginning, should have been part of it. Apart from reviewing the GL, we have also requested the grouping and classification. Based on that, we have corrected it now.

There is no P&L impact.

Sorry, I couldn't get the clarification, sir. The voice was a bit distant.

So there were certain items, which were from the beginning have been part of fee income but wrongly classified under interest income. We have just reviewed the overall grouping and classification also. And based on that, we have regrouped in the correct hearing. So as such, no impact on the P&L. But yes, the classification inside the P&L would change, and that's what we have done for the overall.

No, we get the fact that it was incorrect. I'm just trying to understand what are the examples of it that we've got reclassified? Just trying to understand the nature of it.

So Mahesh, I'll take you through offline. I'll give you some examples. There are -- I think it will take some time. In the interest of time, we can discuss it later.

Okay, sure. There is also an additional income in the credit card line item or card fee income. Can you just clarify that as well?

Some of this relates to that. So some of the interest has been allocated. Again, the fee line items that we have shown, you would see that they are also -- they also reflect the underlying now numbers. So the fee line items of this quarter are not comparable to the previous quarter. So all the reclassification, et cetera, has also been reflected into the corresponding fee line item in that slide. So part of the interest income got reallocated in some of those line items, appropriately reflecting the underlying.

Okay. And the second question is that just one -- the higher slippages that you have shown on the MFI side, in the normal course of event, which is about INR 1,800 crores, how would you explain that for the quarter?

So as I was saying earlier, Mahesh, there have been overdue books, which has been in the last 3 quarters. And part of this is also because of the Karnataka state, some of the events which happened. Those slippages are because of those earlier 9 months stress. We have been continuously saying the slippages in quarter 4 will be higher in 4 digits, and that's what has happened in this quarter.

Perfect. Sorry, you had indicated this answer in the first part saying that you will not want to comment on a quarterly performance of the balance sheet. Is it at least possible for you to give a qualitative answer as to how is the position on the liability side?

Mahesh, I explained to you the liquidity cover ratio. Liquidity takes...

No, that is as of March, right? I'm just trying to give...

We have given in the release also everywhere the first half of this quarter till 15th of May, the average liquidity coverage ratio is 139%. So we had given you the period-end number of March, and we have almost maintained stable liquidity in the first half. If I'm not wrong, we continue to carry the same as of yesterday also.

Thank you very much. Ladies and gentlemen, we'll take that as a last question. I'll now hand the conference over to Mr. Sunil Mehta, and the management team for closing comments.

Well, I think I just want to say thank you to all the analysts who have joined this call. I have already stated what I wanted to state in my closing comments that we are looking forward to rebuilding the bank and our fundamentals are strong. Our Capital adequacy is solid. All the impact from the various negative items have been addressed. We are a clean and a healthy balance sheet that we are building from financial year '25, '26. Any risk or control weaknesses that have been identified during this excess reviews that have been done by internal and external agencies on the bank across all segments of the bank. They will be all put into action in terms of rectification, correction, strengthening of our own technology and systems backup, processes, looking at any breaks that were there in the processes, paying a lot more attention on people because the bank is built on people and sort of making sure that we have the right roles and responsibilities and the right ethical standards for the people to sort of take the bank forward from here. I -- from a Board vantage point, I can assure you that we are looking at this bank as a bank that will be reinvigorated from here. And the stabilization of this will be as we sort of hand over the baton to the new leader who takes responsibility and moves forward from here. And the entire management is working relentlessly to ensure a strong and a highly respected bank, which -- of the future from here, which will be -- which will have a bright future from here. I just want to thank all of you for joining and greatly appreciate the patience and apologies for the delay that we -- happened in starting this call. So thank you so much.

Thank you very much. On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.